Daily Macro Briefing - Stocks Recover As Tech Leads The Way

Okay, very good morning. It is Friday the 21st of May, and just before I begin the regular briefing, don't forget to check out the latest Market Watch podcast. Piers and I, the head of trading, are going to be having a conversation later on this morning, and that latest episode is going to go out then. If you just go to amplifierlive.com/podcast you'll be able to access all the major platforms from, from there, like Apple Podcasts and Spotify and so on. So do check that out and subscribe if you'd like to get that every single week. But look, let's get straight into it and talk about the charts and what's going on this morning. And yeah, positive close on Wall Street and a really strong rebound from what otherwise was that day of crypto kind of turbulence midweek. And even those cryptos to a certain degree stabilizing after the firm recovery we saw from that initial blip lower. And as far as equity markets are concerned, in the close on the NYSE, the S&P finished up about 1%, the Dow 0.5%, and NASDAQ 100 actually outperforming tech, leading the, the recovery, was up about 2%. As far as equity indices are concerned, this morning seen marginally higher once again. The DAX center left here just finding, encountering some near-term resistance at its Asia-Pac highs. Um, but otherwise kind of fairly tight sideways action, just looking for the next kind of meaningful break now, whether a fundamental kind of catalyst to spark that, or just given a big push in either direction in, in equity markets, you tend to get then a period of consolidation. And it might not be until the US session, the reopening of the NYSE, before we get the next kind of kick on in either direction. Um, but otherwise just having a look in the NASDAQ future here in the center chart. So again, really clear to see the, how strong that recovery was yesterday. Um, and on a daily chart, you know, one of the things that we were watching just to see what the daily close would look like was, um, do we close above the, the 200 DMA, of which we did. And that does to a certain degree, um, keep things relatively positive in terms of the bears. Now from a technical perspective, this is on a daily chart And that rectangle there is the one that we've been looking at, um, throughout the entirety of the week. And that encompasses that double top that we had from the 16th and the 18th, uh, that it failed to really get through initially. But now we're above that, and you can see here not too much in the way of real technical resistance. I'd say perhaps be keeping an eye here on 13,588, and then eventually I push back up towards the, the price action we were trading the week prior and the bottom end of that range. Then we were trading in at the end of April around 13,700. So looking, you know, quite, quite good there on the technicals despite generally some of the sensitivity that equities have, have been seeing. S&P up about 9 points this morning. As far as the 10-year is concerned, again, I just have this slightly annotated because it tells a bit of a story, I guess, for yields and where we've been. And really, we've not we've not gone anywhere. We've definitely seen some volatility, and we obviously had that big CPI reaction— not this week, the prior week— where we saw that upside surprise. But that pretty much got discounted for a variety of reasons we've discussed before, with a number of factors being somewhat more convincing of that transitory argument. Enim had the FOMC minutes, and as we were discussing in this briefing yesterday, we didn't really foresee much real credible substance in that being still relevant given the weakness that we've seen, like some jobs data and how dated those minutes were. We reversed all of that move and some yesterday really. And so near term now, I'm just keeping an eye on, uh, kind of a short-term weekly trend line, as you can see here, being relatively well respected. Uh, very quiet price action through the majority of the Asia-Pacific session, so just holding a bit of a range here. And as we go through, this is what I'll be keeping an eye on. But all in all, doesn't really look too interesting unless we start to see a break on the upside and we get this kind of push back up, looking to then use these previous kind of trendline highs as targets. On the downside, um, not really looking too interesting unless I, I think we get down to the lower bound of the range of what we've had in the last 2 weeks, to be, to be quite honest. Otherwise, elsewhere in the commodity space, WTI crude, um, yeah, quite considerable selling pressure throughout the second half of this week. And on the daily chart, which we've been watching, is this trend line going from really the year-to-date price action. And we did actually close just beneath it yesterday. And you can see we're just— even irrespective of the fact we're up 17 cents and we've moved a little higher on the daily chart since we opened, we've remain on the underside of that trend line for the moment. So in terms of the weakness of, um, crude, it does come on the back of the fact that global powers taking part in the indirect US-Iranian talks on a return to the nuclear deal have accepted that US sanctions on Iran, including on its oil exports, will be removed. And as such, that's then brought in an expectation of the fact that Iranian supply will be coming back into market And that's what's kept the, the price under pressure throughout this week. Um, so if we do continue to remain a little heavy here, the kind of areas I'd look at as marked up here would be— put a rectangle— 60, 61. So you've got these lows on the 22nd, 26th was an area of support as well, beginning of April. So around here, and then quite strong support I'd be anticipating further, much further down at 57.50. Uh, but these would be much more medium-term moves because we're talking about multiple dollars away from the current price. So yeah, certainly will be interesting to see how we perform throughout the rest of today. But, you know, one would say that we've already repriced here a good $6 or so, $5. And so how much of that Iranian news has already been priced in at this point? Because ultimately, as much as Iranian supply might come on the market. We are still anticipating demand to increase over the coming months, of course, as Western developed markets or economies continue to reopen. But then also we start to see some more control over some of those outbreaks in Asia with places like India. You've probably not really seen Indian COVID in the headlines much this week, and that's because cases are going down and, and general Mainstream media doesn't like reporting good news, only reports bad news, of course. So, but these would all be positive indications of further, at some point in time, a more uniformed global base recovery, which is going to obviously support demand. So again, still of that more medium-term view that any buying will ultimately be counteracted by— any selling will be counteracted by buying lower down if oil does remain under pressure. Otherwise, Just having a look at, um, the FX markets. The dollar's a touch weaker this morning. Worth keeping an eye on the dollar, in fact, because if we get an extension of weakness, we could break through the, uh, the lows from earlier this week. And, you know, the euro's just kind of sat there at the moment, close proximity to the highs that we were printing, um, 2 days back. And on the daily chart, you can see that these would be meaningful technical levels, um, 1.2249 here on the euro future daily. Um, that was the high back on the 25th of February. Breakout of that really would be targeting the 123 handle and sat just above that would put us back to the range where we were trading. Kind of, uh, resistance mid-dec of last year and the 8th of Jan would be the most obvious target. But certainly, you know, any brief periods of dollar strength have been counteracted and the downward trend that has really been in place since April Continues to be the case at the moment as markets generally perceive that, yes, inflation is increasing, but as far as nominal yields are concerned, if they continue to remain fairly constant and not reflecting this kind of outright concern about immediacy of near-term inflationary fears, then the Fed were going to remain accommodative and their inflation perception will still be transitory and And so dollar weakness still prevailing to a certain degree. And looking at cable this morning, we've had a bit of a breakout here from the overnight kind of early Asia-Pac range. And so just moving up to where we were trading at the highs from back midweek, the 142 handle. So cable on the daily now getting really close back to within about a 40-pip striking distance of the year-to-date highs. We have had UK retail sales come out this morning. Month on month for April, 9.2% above the expected 4.5%. Uh, and in fact, at 9.2%, that is very strong, but actually just inside the top end of the most optimistic estimate on the street, which was for 10%. Now, the reason why the figure is so strong, and there were some banks looking for a very strong number, is because this is April readings, and this was linked to the reopening of shops. That we've seen during that month. And so naturally, retail sales, with more ability for people to spend different ways, was kind of on the balance expected to be a potential upside surprise. But nonetheless, cable a little bit buoyant here. And as I said, if we can get a continuation of those themes, then definitely be keeping an eye out for further run-ups here. On the intraday chart, the R1 lines up pretty much with that high, uh, that we saw back printed on the 18th, so towards the beginning of the week, could well come into sight pretty quickly. All right, a couple of other news headlines just to keep you informed. One is in the UK, and we still are keeping half an eye on this Indian variant and its developments at the moment because any real meaningful pickup in this could well have consequence then for the timeline of the execution of that final part of the 4-point roadmap in the UK, which is looking, I would say, more unlikely than not that we will reach that June 21st deadline for complete kind of dropping of any social distancing and so on. So the number of UK cases of worrying of the coronavirus variant from India has more than doubled. We're now standing at just shy of 3,500 for a second week. It's now increased as authorities also monitor there's a new mutation of the virus. It's called the VUI, uh, 21st of May '01, basically at this moment. So it's quite date-oriented. On the new variant, the Public Health England, the PHE, have said that there's currently no evidence that the variant causes more severe disease or renders the vaccines currently deployed as less effective. So I don't know, for me at the moment, the way of which this Indian variant is performed and any subsequent mutation off the back of that was like what we're seeing reported at the moment. I think the mutation of this new one is about 49 cases at present. Given the fact that so far the vaccines appear to be still effective even through changes in the actual virus in itself, given now the amount of the adult population that's already been vaccinated I don't see too much risk assigned to what's developing at the moment. Sure, it might move the, the end kind of date for the overall loosening of restrictions for the UK beyond the 21st of June by a few weeks. But ultimately, I don't think that makes a great deal of difference. And I don't see too much threat, at least at this point, as far as the pound is concerned, for example, to pull back on, on any of these Indian COVID concerns. As long as the vaccines remain effective, I think we should expect more mutations in the future, and hence the reason why the likelihood for necessary— the necessity for booster shots and so on as we go further forward in time. COVID's here for the long term. We just need to learn to live with it, essentially. So yeah, that's my take on that at the moment. And then one of the other things was, you know, I did briefly mention crypto. Bitcoin futures are kind of just tracking around a $39,000 to $42,000 band at the moment in the last couple of hours. But something that was quite notable, it did see a slight drift in prices after that recovery we saw kind of late Wednesday and through Thursday, was that the US Treasury has said the Biden administration's proposal to strengthen tax compliance includes a requirement for transfers of at least $10,000 of cryptocurrency to be reported to everyone's favorite friend, the IRS, the Internal Revenue Service. So just something to, to be aware of. Again, one of the things, not immediate, maybe more long-term, that given the shakedown in markets that we saw in the crypto space midweek, and just given naturally the demographic trading that and the marketing pushes that we see from low-commission platforms to try and trade things like cryptocurrencies and so on. I mean, I was talking to Sam, obviously used to be on the team, and he's now working at eToro, and he was saying just generally the volumes of usage and activity there is almost 100% crypto. And I think one of the main things I was going to make the point is regulatory pushback and the kind of hazards entailed was quite aggressive marketing to try and tap into a fairly vulnerable market in terms of their education over what things like leverage mean, for example. So you've probably read lots of stories over, over the last week about that in particular, because, you know, there was some— the, the selling pressure for it to materialize in the way that it did midweek in the likes of Bitcoin and Ethereum and so on was due to a lot of liquidation of positions because of a lot of the leveraging that was happening. And so, yeah, I think regulation, even if it doesn't actually come to fruition, I think politicians might get a lot of political kind of points for making a bit of a point out of why cryptocurrencies and the ensuing volatility that we saw is something that they should be talking about. As I said though, you know, regulation change happens at a snail's pace, so I don't think it really impedes things in, in the short term at all for the price of various different cryptocurrencies. All right, quick look at the calendar. Um, we've got some important information coming out this morning. You've got the French and the German manufacturing service flash PMIs. So these are for May, and these will ultimately be market moving. As to what degree, well, I'll be keeping an eye on the service number from France, expected at 53, which is improvement from 50 spot 3. And then from Germany, on the manufacturing side, expected to still remain particularly firm at 65.9 from 66.2. These figures should generally start to improve here on out because particularly in mainland Europe, um, the administering of vaccines has really started to pick up pace over the last month and a half, 2 months now, uh, they're kind of really catching up after that really quite slow start with the vaccination rollout program. And so as such, with case control becoming a little bit more effective as well and case rates remaining lower, then basically people should start to become more optimistic about what the future can bring. And so these figures generally will either stay pretty high, like on the manufacturing side in Germany, or or continue to improve from quite low levels, like in the case of French service sector. So yeah, if that does materialize, obviously that could then give the euro a bit of a propensity to break through that R1 and weekly high. And if we do, and the dollar breaks down, then cable's already on the firm footing on the back of the decent retail sales report, could see a nice progressive move in some of those directional trends that are materializing already this morning at the open in the major currency pairs. The UK PMIs as well come out at 9:30. You get the US readings at 2:45. No major 1:30s from the US today. And then Eurozone consumer confidence flash reading at 3 PM. Speaker-wise, there is a euro area finance minister and central bank chiefs holding an informal meeting today. Christine Lagarde, the ECB president, will be speaking at midday at a Eurogroup press conference. As far as Fed speak is concerned, only one really It's Fed Daily, who is a voter. She'll be at 6:30 later on this evening. But that is it. So I'll let you guys get on with the day. Don't forget to check out the podcast. Just go on to Spotify, Apple, search Market Watch by Amplify Live. You'll be able to find it. Otherwise, have a good session ahead and a great weekend. Thanks very much.